TEX - NYSE

Greetings, and welcome to the Terex Fourth Quarter and Full Year 2023 Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Paretosh Misra, Head of Investor Relations. Please go ahead.

Good morning, and welcome to the Terex fourth quarter 2023 earnings conference call. A copy of the press release and presentation slides are posted on our Investor Relations website at investors.terex.com. In addition, the replay and slide presentation will be available on our website. We are joined by Simon Meester, President and Chief Executive Officer, and Julie Beck, Senior Vice President and Chief Financial Officer. Their prepared remarks will be followed by Q&A. Please turn to Slide 2 of the presentation, which reflects our safe harbor statement. Today's conference call contains forward-looking statements, which are subject to risks that could cause actual results to be materially different from those expressed or implied. In addition, we will be discussing non-GAAP information we believe is useful in evaluating the company's operating performance. Reconciliations for these non-GAAP measures can be found in the conference call materials. Please turn to Slide 3, and I'll turn it over to Simon Meester.

Thank you, Paretosh, and good morning. I would like to welcome everyone to our earnings call and appreciate your interest in Terex. As many of you know, I've been at Terex for a little over five years now, but this is my first earnings call as CEO of the company and I'm honored and humbled to take over from John Garrison and very excited about the road ahead. We have a great company operating in attractive markets and are financially strong. We have global market-leading businesses and an exceptional team. So looking ahead, I would expect much of my focus to be on helping Terex accelerate its growth. And as we grow, we will continue our focus on

Thanks, Simon, and good morning, everyone. Let's take a look at our fourth quarter financial performance found on Slide 11. Sales of $1.2 billion were consistent with our expectations and prior year, reflecting healthy demand for our products as strength in North America offset some softening in European markets and deliveries returned to a more normal seasonal pattern. Our 2022 fourth quarter sales were the strongest that year as supply chain constraints started to ease. Gross margins of 21.5% increased by 220 basis points over the prior year as pricing -- improved manufacturing efficiencies and cost reduction initiatives helped to offset cost inflation and Monterrey start-up costs. Gross margins were 21.8% excluding a one-time product liability verdict of $4 million in MP. SG&A increased over the prior year due to wage inflation and incentive compensation expenses and included $13 million of one-time charges due to accelerated vesting and other expenses. Excluding these items, SG&A as a percent of sales was 11%. Income from operations was $116 million. Excluding $17 million in one-time charges, operating income was $133 million, with operating margin of 10.9%, 100-basis-points improvement over the prior year. Interest and other expense of $10 million declined $5 million from the prior year, as favorable mark-to-market adjustments more than offset higher interest rates. The fourth quarter global effective tax rate was a benefit of 21% due to the establishment of a deferred tax asset from the recognition of a tax attribute associated with our operations in Switzerland. Fourth quarter earnings per share of $1.88 included a net favorable impact of $0.47 from non-recurring items including: a $0.62 one-time tax benefit related to the company's operations in Switzerland, a $0.07 mark-to-market gain on third-party investments, a $0.17 charge related to accelerated vesting and other expenses, and a $0.05 charge related to a product liability verdict in MP. Excluding these non-recurring items, fourth quarter earnings per share was $1.41. Free cash flow for the quarter was $135 million, as increased operating profits were partially offset by inventories added to support production moves in 2024 as well as lingering supply chain disruptions. Let's take a look at our segment results, starting with our Materials Processing segment found on Slide 12. MP, once again, delivered excellent full year performance in 2023 as sales were up 15% and operating margins expanded 80 basis points to 16.1%. MP's incremental margin of 21% demonstrates continued solid operational execution. For the fourth quarter, MP sales increased by 1% to $555 million compared to the exceptional fourth quarter of 2022, driven by strength in demand for aggregates and environmental products. MP's reported operating profit of $84 million was down $3 million, as improved manufacturing efficiencies and disciplined cost management was offset by an unfavorable product liability verdict. MP ended the quarter with backlog of $767 million, still above historical norms, while our bookings increased 22% sequentially. On Slide 13, you'll see our Aerial Work Platforms segment financial results. AWP delivered excellent performance in 2023 as full year sales were up 18% and operating margins expanded by an impressive 480 basis points, with an incremental margin of 40%. The team did a great job on price/cost discipline, efficiency improvements, cost reduction activities, all while ramping up the Monterrey facility. AWP had a solid fourth quarter with sales of $660 million, slightly down from the strong prior year due to softness in Europe and a return to seasonal delivery patterns for its customers. AWP reported quarterly operating profit of $61 million, an increase of 13% over the prior year. The increase was driven by cost reduction initiatives, partially offset by unfavorable product and regional mix, manufacturing efficiencies and severance charges. AWP backlog is very strong at $2.6 billion, which is approximately 3 times the historical norm. Strong bookings of $850 million were up 59% sequentially, returning to seasonal order patterns. Turning to Slide 14 and full year 2023 financial highlights. Our performance in 2023 reflected significant improvement in the businesses and the extraordinary efforts of our team members. Earnings per share increased 75% from $4.32 to $7.56. Full year earnings included a net favorable impact of $0.50 from non-recurring items that we discussed earlier in the call. Excluding these items, our earnings per share increased 63% year-over-year to $7.06. Sales of $5.15 billion were up 17% year-over-year. Our operating income was $652 million with operating margin of 12.7% excluding $15 million of non-recurring charges, which reflects a strong 320-basis-points expansion over the prior year, driven by prudent cost management as well as price realization. Incremental margins were 30%, 32% excluding non-recurring items. Full year SG&A was 10.3% of sales, excluding non-recurring items, consistent with our expectations. The effective tax rate for the year was 10.9%, which is impacted by the establishment of a Swiss-deferred tax asset as explained earlier. Excluding the impact, our effective tax rate would have been 18.2%. Please see Slide 15 for an overview of our capital allocation strategy. Free cash flow of $366 million increased $214 million over the prior year, resulting in a 71% conversion to net income. We continue to carry a higher level of inventory to support our production moves and navigate supply chain disruptions. Hospital inventory was $25 million, down $11 million from the prior year, but up $5 million sequentially from the third quarter. Capital expenditures and investments for the year were $151 million, with a large investment related to our Monterrey facility. We returned $104 million, representing 28% of our free cash flow, to our shareholders in share repurchases and dividends. We reduced our debt $152 million, as we have paid down our revolver, and our bonds are at a fixed rate of 5% until the end of the decade. Our net leverage remains low at 0.4 times, below our 2.5 times target through the cycle. We have ample liquidity of $971 million, and we recorded a return on invested capital of 28.5%, up 720 basis points year-over-year. Terex is in an excellent position to continue to increase shareholder value and profitably grow the business. Now turning to Slide 16 and our full year outlook. 2023 was an excellent year for Terex and our team members are committed to delivering another great year in 2024. It's important to realize we are operating in a complex environment with many macroeconomic variables and geopolitical uncertainties, so results could change negatively or positively. With that said, this outlook represents our best estimate as of today. We anticipate earnings per share of $6.85 to $7.25 based on sales of $5.1 billion to $5.3 billion, which reflects another year of solid consistent performance well ahead of our Investor Day targets. Our sales outlook incorporates healthy volumes supported by customer demand, but also reflects caution around supply chain and labor constraints, as well as softening in Europe. We expect the first and second half sales to be comparable to each other, with the second and third quarter sales higher than the first and fourth quarter as we return to more seasonal customer delivery patterns. We anticipate improved full year operating margins in a range of 12.8% to 13.1% as we aim to remain price/cost neutral for the year and use cost reduction activities to offset Monterrey start-up inefficiencies. We do want to emphasize the stronger first half in 2023 when making year-over-year comparisons. We expect corporate and other expenses to be evenly spread throughout the year. Based upon global tax laws, we expect a 2024 effective tax of approximately 22% versus our 2023 normalized rate of 18.2%. We estimate free cash flow of $325 million to $375 million, including capital expenditures of approximately $145 million, with the largest component being our Genie Mexico facility. Let's review our segment outlook. We anticipate MP sales of $2.2 billion to $2.3 billion, with continued strong margins in the range of 15.6% to 15.9% for the full year. Compared to the prior year, sales are anticipated to be lower in the first quarter to realign supply and demand in our Fuchs and Crane businesses. Q1 margins are anticipated to be approximately 200 basis points lower due to unfavorable product and regional mix. Sales and margins are expected to increase from Q1 levels and be relatively consistent for the remainder of the year. We expect AWP sales of $2.9 billion to $3 billion, with improved operating margins of 13.4% to 13.7% for the full year. We anticipate full year operating margin expansion due to continued cost-out activity, favorable absorption at our mature plants, partially offset by inefficiencies due to the Monterrey start-up. We expect Q1 sales to be higher than the prior year and margins to be slightly lower as increased volumes are offset by unfavorable product and geographic mix and start-up inefficiencies. We anticipate the quarterly cadence of our AWP sales to be closer to historical patterns with the highest sales in Q2 and Q3, which will also drive higher profitability for those quarters. The Terex team is committed to delivering another strong year in 2024. And with that said, I will turn it back to you, Simon.

Thanks, Julie. Turning to Slide 17, we expect to deliver strong 2024 results, driven by continued focus on execution, continued focus on efficiency, leveraging our diverse portfolio and the favorable end markets. We have industry-leading businesses and brands with competitive scale. We have a strong balance sheet to support our growth, and we have a global, experienced, diverse and highly-engaged team that is committed to continue to create value for our customers and our shareholders. I'm very excited about Terex future and look forward to the years to come. And with that, let me turn it back to Paretosh.

Thanks, Simon. As a reminder, during the question-and-answer session, we ask you to limit your questions to one and a follow-up to ensure we answer as many questions as possible this morning. With that, I would like to open it up for questions. Operator?

Thank you. [Operator Instructions] Your first question comes from the line of Stanley Elliott with Stifel. Your line is open.

Good morning, Simon, Julie and team. And Simon, welcome. Simon, I guess, starting off, the first thing you mentioned was helping accelerate growth. Could you kind of flush that out a little bit more? How are you thinking about the organic component versus the M&A opportunities that you potentially have? Just curious how you're thinking about the business overall.

Yeah, thanks for the questions, Stan. Yeah, obviously, I'm in my fifth week on the job. So, I hope you can appreciate I'm still very much in listening-and-learning mode. We've built a great company over the past several years and we truly transformed the portfolio and significantly improved our ability to execute. We have a portfolio of market-leading businesses with strong operating margins, strong values and now with a strong balance sheet. So, obviously, a lot to play with as an incoming CEO. So that's why I said that I expect my focus to be mostly on the building out and accelerate our growth, but obviously, making sure that we maintain our operational discipline and remain focused on our efficiency and our agility. We see many opportunities for organic growth, and we're demonstrating strong return on invested capital. And we are ballpark of $5 million business in a $34 billion addressable market. So, there is just a lot of opportunity for organic growth. But we're also looking at inorganic opportunities, anything that could expand our addressable markets or strengthen the portfolio, but obviously -- or widen our moat, but obviously, it needs to be actionable, it needs to be affordable and it needs to be financially accretive. And everything that we have on the table, we will force rank versus things like dividends or share buybacks, and then obviously, pick whatever provides best shareholder value. But I think that the good news, at least for me as incoming CEO, is that we have strong optionality versus perhaps where we were three to five years ago.

Yeah. And could you also flesh out maybe a little bit more, I guess, the question on the Aerials, 100 basis points of margin, kind of the flattish volumes. When should we expect kind of the Mexico piece to roll off? How is the utilities market? Is that kind of supply chain easing up? Any more color there would be very helpful. Thanks.

Thanks for the question, Stan. Good morning. AWP, they did a fantastic job in the year with sales up 18% and OP margin expansion of 480 basis points. The team successfully managed through all the disruptions in supply chain, inflation and longer-term [indiscernible] projects, and still delivered strong year-over-year performance. Our Monterrey facility is our largest facility. It's approximately 1 million square feet and the largest that we've ever built. And so, as that facility starts to come online, it's going to run unfavorable manufacturing efficiencies or unfavorable burden absorption until the product moves are completed. In Q4, manufacturing inefficiencies were about $4 million unfavorable to what we had put in our outlook, as we've had an in-quarter supply chain issue with one of our new suppliers. In addition, we took a $5 million charge, which was accelerated due to some of the product moves. It was a depreciation expense -- depreciation charge related to some assets not being moved to the Monterrey facility. In addition, there were some severance charges in AWP and some unfavorable FX. So, most of these charges are non-recurring, severance and depreciation, and manufacturing efficiencies will improve going forward as the plant comes online. The team did a great job in expanding margins by 480 basis points and we're confident in our margin improvement outlook for next year. We did see, in Q3 and Q4, about $21 million of charges related -- manufacturing efficiencies related to the Monterrey facility. We would assume that the charges would be about $15 million to $20 million mostly in the first half of next year and the margins to improve as we go forward into Q3 and Q4. And from a utilities perspective, yes, we did have a supply chain issue that disrupted Q3 and that issue is behind us and utilities improved in the fourth quarter.

Perfect. Thanks so much, and best of luck.

Thanks, Dan.

Thanks, Dan.

Your next question comes from the line of Seth Weber with Wells Fargo. Your line is open.

Hi, good morning. Thanks for taking my question.

Good morning.

Good morning. I wanted to maybe dig into the MP margin outlook a little bit. Julie, I think you said down 200 bps year-over-year in the first quarter. Is that -- I guess I'm just trying to understand that, how much of that is product/regional mix, how much of it is just the portfolio is transitioning through some acquisitions that you did and you're just buying lower-margin stuff that's lower margin right now? And is that -- will that 200 bps year-over-year just suddenly flip as we get into the second quarter, or is that going to be more of a gradual kind of a gradual year-over-year compare get better? Thanks.

Thanks for the question, Seth. MP is forecast to have an OP margin in the 15.6% to 15.9% in the year. It's just a slight year-over-year decline in our operating margin due to product mix. Our highest growth business is our environmental sales and they're a little bit lower than the segment margin. And so that's how the full year margin goes down just a bit. When we look at Q1, Q1 is going to be a bit lower on sales and volume due to some rebalancing of supply and demand in our Fuchs and Tower Cranes business basically. And so, our margins are expected to be 200 basis points lower in Q1, but then they are expected to increase in Q2, Q3 and Q4, and be relatively consistent for the remainder of the year.

Yeah. And I would just add that all these -- Seth, all these businesses are operating at double digit margins. They're all strong performing businesses. So these are really nuances that we're talking about. MP's journey has been really remarkable over the last seven, eight years. And as I mentioned in my opening remarks on how they've been able to grow near double digits per year over the last seven, eight years, and now all of these businesses are strong double-digit businesses. So, this is really nuance for 2024.

Got it. Thank you. Maybe just a follow-up on AWP. I guess, can you just talk to the backlog that you have? Is all of that for 2024? And can you -- are you seeing any cancellations or push outs from your customers in the AWP business? Thank you.

Yeah, thanks for the question. Obviously, strong sequential bookings in AWP, up 59%. Still record high backlog, 3x historical levels. I would say for AWP, it's not really a demand issue, very strong underlying demand. Not all the negotiations with the nationals were booked in the fourth quarter. Some of that will drop in the first quarter. So, we expect some more strong bookings to come in the first quarter. Utilities within AWP is taking bookings for 2025. I would definitely say we have a strong order book. It's sticky. We don't see cancellations. It gives us a lot of confidence going into 2024.

Great. Okay. Thank you, guys. I appreciate the comments.

Thanks, Seth.

Your next question comes from the line of Steve Fisher with UBS. Your line is open.

Great. Thanks. Good morning, and congrats, Simon. Just trying to get a sense of your North American AWP volume expectations for 2024. I guess with overall sales flat, I assume you have some positive pricing, some growth in parts and utility. I assume Europe is down a few percent. Are we thinking North American volumes are expected to be kind of up mid single-digits? And I'm just curious kind of what the sentiment from the broad rental channel is. Are they telling you that their fleet spending is up, down or flat this year? And how they're framing that in a broader [indiscernible] context?

Yeah. You got it right on the first -- on your first assumption, North America up, Europe probably a little down. Overall, as I said, strong backlog going into the year, strong bookings, but some caution about Europe. North America demand -- underlying demand very, very strong. There's still a little bit of a supply chain disruption even though it has greatly improved versus the beginning of 2023. Still it only needs -- it only takes one part for us to stop a shipment that we can't complete a product. But yeah, in terms of activity with our nationals, our large customers in North America, they're all very bullish. They all feel that 2024 is another strong year. As a matter of fact, 2025 seems to be strong as well. So, it seems to carry forward. And I would say, overall, we do see probably a little bit more activity with our nationals going into 2024 just because of their exposure to the mega projects. But overall, as a global business, it doesn't really impact us from a mix standpoint, because it just kind of washes out globally in terms of product and geographic mix.

Okay. That's very helpful. And then just a follow-up on Europe. Excuse me. Did it get worse in the quarter? Is it stabilizing? How localized to any particular part of Europe is it? And how is competition a factor there?

Yeah. Are you talking about AWP or Terex as whole?

AWP, yeah -- actually, both would be good.

Okay. Yeah, so I'll start with AWP. So, it's actually for both businesses, it's mostly Germany and the UK. It's a little bit Scandinavia. Germany and the UK is mostly non-res related. Scandinavia, it's mostly resi, where it starts to slow down and it's mostly impacting AWP and MP for that matter. In terms of MP, it's mostly tied to the businesses that have a little bit more of European exposure. So think Fuchs, for example, is also tied, obviously, to the scrap market, but also our Cranes business, specifically our Tower Cranes business, with their exposure to the European market, they are facing some headwinds. So that's what I would call out in terms of European exposure.

Okay. Thank you very much.

Your next question comes from the line of David Raso with Evercore ISI. Your line is open.

Hi. Thank you. Good morning. I'm trying to think about the straddling of demand and supply for 2024 and 2025 for AWP. Might be a hard question to answer initially, but if you had Mexico running the way you expect, no labor constraints in some of the more mature AWP plants, can you give us some idea of what would the guide have been? I'm just curious, are we talking a couple of hundred dollars of revenue that you could be shipping in '24 that at the current moment you're saying you can't? And then, the follow-up would be, do you see that simply getting pushed to '25, or has maybe some incremental capacity loosened up elsewhere in the industry that unfortunately that might be just simply a lost sale? So, I'm just trying to think about the tightness right now, the inability to ship, and what does that do to the arc of the AWP cycle for '24 and '25.

Yeah, thanks for the question, David. So first of all, for everyone's math, there's about $300 million in the AWP backlog that's already carried over to 2025. So the backlog numbers that we're reporting is not all for 2024. There's about $300 million of that already allocated to 2025. So, we have about nine to 10 months coverage currently in the backlog for 2024. In the case of Monterrey, I would say, we're obviously ramping up a very large facility, as Julie mentioned, large facility we've ever built, and we're very happy with progress we're making. We're still very much on track to deliver on the 200 basis points commitment that we made for 2025 in terms of operating margin improvement. And I would say that if supply chain continues to improve in the current trends, there's definitely upside to our guidance, to our sales outlook, and we would be towards the upper end of that range. And it's too early in the year to speculate what else we could see for the remainder of the year. But I -- still I believe and as I said in my opening remarks, 2023 was a strong year, 2024 is a strong year. And by what we're seeing today, we think 2025 will be a strong year.

And maybe you don't want to answer it, fine, but just so I can ask it again though, is there a number you can give us a sense of what your customers are asking for in '24 relative to your guide, just so we know the torque? And, hey, if things do loosen up, as you said, the second half of the year, let's say, third quarter in particular, we can get that upside, then what's the conversation like on, "Look, if I can't get it from you, I'm going somewhere else and I can get it for '24," or does it inherently push it into '25? I'm just curious what those kind of dynamics thinking about the two years of AWP, not just '24?

Yeah. And I don't think I can give you an answer today, David. What is important for us in 2024 is that what we're committing to our customers is what we're delivering on. And so that's our first priority. And how much of that eventually will end up spilling over in 2025, what we're currently committing to, we don't want to spill over into 2025. And so that's what we're committing to. That's what we want to build and that's what we want to ship. Currently, we think that we have -- we could have upside to the upper end of the range, but I can't give you a number of what that eventually could look like when we hit the middle of the year, for example.

I appreciate it. Okay, thank you.

Your next question comes from the line of Steve Volkmann with Jefferies. Your line is open.

Great. Thank you, guys. Good morning, everybody. I'm going to stay with this theme a little bit. Can you sort of ballpark for us, I don't know, two years or whenever this is -- Monterrey facility is up and running in full steam, how much capacity are you adding in the AWP product, roughly?

So, the main reason we built Monterrey, we are building Monterrey, was -- because we wanted to improve the overall competitiveness of the business. So, it was mostly to improve Genie's through cycle margin performance. And as I mentioned, the project goes really well. We're also expanding our supply base, and it's mostly a facility that will be focused on supporting North America. What it will actually mean in terms of capacity expansion, I can't give you a hard number, to be very honest with you. It's a facility that's mostly that helped us to kind of bring some higher-cost facilities offline like Oklahoma City and Rock Hill. So for us, it was mostly cost and competitiveness play, but obviously, the facility is built to grow. And so, we can expand going forward, but for now it's mostly to bring higher-cost capacity offline.

Okay. Thank you. And I think, Julie, you said that you expected $15 million to $20 million of kind of start-up costs down there for the full year '24, please correct me if I'm wrong. Are there any other kind of headwinds we should be aware of in margin in AWP in 2024? And I'm just kind of thinking about bridging the gap with sort of your biggest competitor.

Yeah, when you think about the inefficiencies, I guess, related to Monterrey, we're saying $15 million to $20 million in 2024, but that's primarily more centered to the first half of the year. And so, we expect margins to improve in Q3 and Q4 as more production is going through that facility, it becomes more efficient and the inefficiencies go down. So that's the primary difference. And I guess I'd just take this time to talk about, as you look at our comparisons year-over-year, these we started up our Monterrey in Q3 and Q4 of 2023, so it impacted the second half of the margins, they're not in the first half of 2023 when you compare. And so, we'll have those inefficiencies running through the first half of the year. And then, in the fourth quarter, margins will improve, and those inefficiencies will -- that were in the second half of 2023 won't be as much in the second half of 2024, if that helps in your calcs.

Yeah, great. Thank you.

Thank you.

Your next question comes from the line of Tami

Hi, good morning, Team Terex. Hope you're doing well.

Good morning.

Hi, how are you? So, my first question is on the Monterrey facility again. Just trying to understand the 200-basis-points improvement in operating margin in 2025, when it ramps, how volume-dependent is that margin improvement target? So, let's say, if 2025 volumes, for assumption, let's say it was down, would you still see a margin improvement given it's a big facility, capacity utilization is probably needed to get that 200 basis points number. So just trying to think about the capacity utilization versus volume dependency of that 200 basis points target.

Well, Tami, there's always a lot of variables that happen, but all things being the same, we would expect to have a 200-basis-point improvement. And we would expect, as Simon said, we're seeing a strong demand in the marketplace, so we wouldn't anticipate that being an issue at this point in time. And so, we would plan on the 200 basis points margin improvement in 2025.

Got it. Okay. That's very helpful. And then, I wanted to go back to Europe. Europe has been weak for some quarters now. Sitting here today, how are you thinking about a potential timeline for recovery in that market? And with that market down, are you going to be more opportunistic with some acquisitions maybe if it lends well to some of your growth ambitions? So, any color on Europe and thoughts on Europe?

Yeah. Well, it certainly seems like you can talk about soft landing, hard landing, no landing. It certainly seems like Europe is a little bit further behind in terms of managing their landings, so to speak, especially Germany and the UK, as I mentioned earlier. Actually, you say couple of quarters, we have seen it mostly hit us for the first time in the fourth quarter, and we see it spill over in the first and the second quarter of this year. What's going to happen in terms of recovery? I wouldn't want to speculate. But obviously, I think the European Commission is eager to at least get some sort of soft landing for most of their economies. Yeah, in terms of inorganic action, I wouldn't be able to be specific, Tami, other than we have an active pipeline of opportunities. As I mentioned, we look at anything that could make us stronger, widen our moat or help us grow faster, but we will rank everything as we should versus all the other options we have to increase shareholder value. And again, we're posting very strong return on invested capital on just investing in our own current activity. So, we have a lot of optionality, and of course, we're also looking at Europe, but we will always force rank it versus all the other options that we have. So nothing specific to call out there.

Got it. Thank you so much.

Thanks for the question.

Your next question comes from the line of Nicole DeBlase with Deutsche Bank. Your line is open.

Yeah, thanks. Good morning, guys.

Good morning.

Just first question focusing on some of the dynamics around free cash flow. So, can you guys talk a little bit about your expectations for working capital for 2024? And then, as we roll into '25, where do you think CapEx normalizes post Monterrey investments?

Thanks, Nicole. We had free cash flow of $366 million, which was a conversion of 71% to net income. And we're forecasting $350 million or so of free cash flow for next year. This year benefited from a sale of our Oklahoma City facility, which was about $32 million. We expect that -- we've guided to 1% to 3% of our sales in our Investor Day for capital expenditures. We've been on the higher end of that this last year and in 2024 due to the Monterrey facility, and we don't have any major new Monterrey -- $1 million -- or 1 million square foot facilities coming in into 2025. So, we would expect that come down in 2025 and to have a stronger free cash flow conversion percentage going forward into 2025. And so, in terms of net working capital, we have a slight improvement in net working capital forecasted in the year. But essentially just because of all the production moves and still some of the disruption we're seeing in the supply chain, we'll continue to carry a bit higher inventory going forward. And, just really to make sure that everyone understands that our management team were all -- part of our incentive compensation is net working capital performance and improvement. So, the team is very focused on improving net working capital.

But I would definitely say we have upside on cash conversion going into 2025 because of the third and last year of the Monterrey investment.

Got it. Thanks, guys. And then, if I could just ask a nitpicky one? Julie, when you spoke about MP revenues being down in the first quarter, any sense of the magnitude there? Just trying to understand the underlying dynamics behind the 200 basis points of year-on-year margin contraction. Thank you.

Yeah. In terms of -- sorry, the question was on revenue, right?

Yeah. So...

Yeah. So I think the first thing I would add is it's important to remember that the fourth quarter of 2022 was our strongest quarter in 2022 because that was the first quarter when the supply chain really started to improve, and we started to catch up on a lot of our shipments. So that makes the year-over-year comps a little off. But then the fourth quarter of 2023, especially in our MP businesses, as I mentioned earlier, is where we really started to see the slowdown in Europe come in, and that kind of impacted MP a little bit.

Nicole, we would expect roughly a 7% decline in sales in the first quarter due to that rebalancing in Fuchs and Towers in the first quarter.

Thank you very much. I'll pass it on.

Thank you.

Your next question comes from the line of Steve Barger with KeyBanc. Your line is open.

Thanks. Good morning.

Good morning.

Hi, Steve.

I think all the capacity questions are just trying to understand if we're near peak in terms of revenue dollars. So, I'll try it another way. After you swap out the high-cost footprint for low cost and everything is up and running, do you expect to have more capacity in units or dollars in 2025 following what will be two flattish revenue years in '23 and '24?

We do expect to have upside in our capacity, yes.

Can you frame magnitude at all?

No, I can't.

Okay.

I mean, we think about it, Steve, that we have the ability to add shifts, et cetera, so capacity can go in step functions as well. So, it's not always easy to review that...

Yeah. I mean, we're running single shifts in most, if not all of our facilities, But I can't give you a hard number now.

And when we think about it, Steve, we have strong years in 2023 and 2024. And as Simon indicated, customers are talking about 2025.

Right. Okay. And if we step back from near-term margin issues that you talked about, if revenue runs in this low to mid $5 billion range, what kind of margin expansion can you drive from efficiency programs? And again, I understand the near-term issues, but do you think there is 50 basis points of productivity or 10 basis points or 100 basis points? What's achievable from continuous improvement?

So, Steve, as part of a manufacturing company, continuous improvement needs to be part of our DNA. And when we talk about, we gave out some pretty nice investor targets of where our margins improved from 2022 and we're at this point, as we said in our prepared remarks, we're slightly ahead of our Investor Day target, so we -- at this point in time. So, we continue to think that we can have sequential margin improvement as we grow.

Understood. Thank you.

Thank you.

Your next question comes from the line of Tim Thein with Citigroup. Your line is open.

[Technical Difficulty] On the impacts from pricing and what do you expect in 2024, I guess relative to cost and what that -- how you expect that fares relative to what you experienced in 2023?

Yeah. Thanks, Tim. Yeah. So, we still see inflation in 2024, although lower inflation levels that in 2023. Our position is still the same. And obviously, we're staying very close to our customers on this. We stay very transparent. But our goal is to stay price/cost neutral, to keep pushing ourselves on continuous cost-out to ease the impact on our customers also -- but also to continue to improve our operating margins. And so, we do see some inflation, although lowering, but especially in -- actually, across the board, steel, labor, integrated components, but also logistics, we definitely still see inflating input cost for 2024, although at a lower level than in 2023.

Okay. But -- okay. Presumably, it was a -- was it a tailwind for Terex in 2023 or is that just...

So, Tim, we would say that we're price/cost neutral and then the other margin improvement comes from cost-out and continuous improvement.

Okay. Understood. And then maybe just on MP, I don't think we -- there were any comments just on the largest business with aggregates. Just what the outlook -- what you have in terms of what's assumed in 2024? There's always -- there can be some movement there in terms of whether the dealers are adding or shrinking their rental fleets. So, maybe just a comment or two in terms of the outlook for aggregates, which I know is more of a global business, but how you see that shaping up in '24? Thanks.

Yeah. Thanks for the question. Definitely strong tailwinds in North America for our aggregates business, a little bit of headwinds in Europe. But with the spending in infrastructure, with the construction going on in North America, definitely benefits our aggregates business in North America, but a little bit of slowdown in Germany and UK is working against it.

All right. Thank you.

Thanks, Tim.

Your next question comes from the line of Jerry Revich with Goldman Sachs. Your line is open.

Yes. Hi, good morning, everyone. And Simon, congratulations again.

Thanks.

Simon, I'm wondering if we could just go back to your comments earlier on the call around M&A parameters. You folks have been looking for additional bolt-ons within MP for a couple of years, and you haven't been able to find anything that matches the value proposition for you folks. How's the approach for evaluating M&A today compared to what we've been looking at over the past couple of years? It sounded like you alluded to potentially a few additional product lines. I'm wondering, can you just expand on your prior comments in terms of what's -- how do you view what's accretive and the parameters of what you folks are evaluating going forward.

Yeah. I mean, if I look at our portfolio today, we have a portfolio of market-leading businesses around the globe, diverse, definitely strengthening each other. Strong operating margins, all of our businesses pretty much run into double digits now. Strong balance sheet, so obviously, that gives us the optionality. We're looking at anything that would make us stronger, would -- as I mentioned earlier, would make us more synergistic, would widen our moat, would help us grow faster, but it's going to be opportunistic in nature. It needs to be actionable, needs to be affordable, needs to be financially accretive. And then again, I want to reemphasize, we also still have a lot of opportunities to look just organically at expanding our businesses, because we still have a lot of addressable market that we can go after with our existing portfolio. So obviously, we look at our pipeline of inorganic opportunities, but we're also very much looking at what we can do organically. So, everything is on the table is what I would say. And what makes my job a lot easier, quite frankly, as incoming CEO is we have a lot of operational momentum going into 2024. We have posted very strong improvements, 2023 versus 2022, up 300 basis points on operating margin as Terex overall, growing 17%. A lot of strong operational momentum. And I would say my first priority should be and will have to be to make sure we keep our operational momentum going forward into 2024. But to your point, with the strong balance sheet that we have, we do have optionality, but we'll hold it against everything else that we have on the table.

Super. Appreciate it, Simon. And can I ask in terms of in Europe, there's an anti-dumping investigation on China product for AWP. Can you just talk about your position in that investigation and the opportunities and potential risks that you see for yourself and others and the timeline that you expect the decision?

Yeah, thanks for the question. Yeah, we learned about the petition in Europe. We support the petition overall against illegal dumping of equipment in Europe or in any market for that matter. Our position is that we support fair competition in any market. We believe that a level-playing field is essential and is in the best interest of all stakeholders, team members, jobs, customers, suppliers, shareholders. And so, yeah, we were made aware of the petition that was filed in December. We're working with the European Commission and are responding to their request as required. We're eager -- we're monitoring the case and we're awaiting whatever the outcome may be. And our strength is that we have the global footprint. We are pretty flexible. We have leverage. We have optionality in our footprint. So, whatever the outcome will be, we're looking forward to it, and we'll be able to respond.

Thank you, Simon.

Thank you.

That is all the time we have for questions. I will turn back to Simon for closing remarks.

All right. Thank you, operator. I want to thank everyone for the questions. I'm looking forward working with you. I want to thank you for your interest in Terex. If you have any additional questions going forward, please follow-up with Julie, John or Paretosh. And with that, operator, please disconnect the call.